Accounting/Tax/Regulation
ARRC Comment Letter On The Proposed Tax Relief Guidance Released By Treasury and the Internal Revenue ServiceMarch 24, 2020The ARRC sent a
letter to the U.S. Treasury Department and the Internal Revenue Service about the proposed regulations regarding guidance on the IBOR transition. The letter describes the proposed regulations as “comprehensive” and “addressing most of the concerns raised by the ARRC in a manner that gives significant flexibility to taxpayers seeking to transition away from IBORs.” In the letter, the ARRC provided a number of recommendations intended to facilitate market participants’ ability to rely on the proposed regulations as they act to transition legacy IBOR contracts.
Memorandum regarding "Capital and Liquidity Regulatory Considerations in the Context of a Transition from Interbank Offered Rates to Alternative Risk-Free Rate Benchmarks"November 2, 2020The ARRC released a memorandum to the Federal Reserve, FDIC and OCC summarizing its preliminary findings and recommendations regarding potential regulatory considerations associated with the application of current and anticipated capital and liquidity requirements in the context of the market transition from the use of interbank offered rates to alternative risk-free rate benchmarks. The memorandum describes the capital and liquidity considerations the ARRC has identified thus far, including preliminary assessments as to whether the ARRC should approach regulators to request clarifying guidance regarding the capital and liquidity rules to facilitate this transition, and may be updated from time to time to reflect newly identified considerations and revise previously identified topics as the path and impact of the transition evolve.
Confirming Letter on Accounting Considerations for Embedded DerivativesJune 3, 2020The Chair of the ARRC's Accounting and Tax Working Group released a
letter to the Securities and Exchange Commission (SEC) which confirmed that they do not object to the Alternative Reference Rate Committee's Accounting and Tax Subgroup's conclusions that the SOFR interest rate reset features evaluated in the letter are terms of the host contract and do not represent embedded derivatives that require further assessment for bifurcation under ASC 815 based on the specific facts and circumstances described in the ARRC's letter dated April 20.
Letter Requesting IRS and Treasury Guidance Regarding Financial Contract Discount Rate TransitionSeptember 4, 2020The ARRC submitted a request for guidance concerning the transition to SOFR discounting with respect to a vast number of existing financial contracts that currently use the effective federal funds rate as the discount rate. This transition is a critical step in the ARRC's Paced Transition Plan, and the ARRC plans to request that Treasury and IRS expand the IBOR transition guidance to cover such discounting transition.
Request for Modification of CFTC IBOR No-Action ReliefJuly 23, 2020The ARRC filed a letter with the CFTC's Division of Clearing and Risk (DCR), Division of Market Oversight (DMO), and Division of Swap Dealer and Intermediary Oversight (DSIO) requesting modifications to the existing IBOR no-action relief previously granted by such divisions in CFTC Letters 19-26, 19-27 and 19-28. These requests are summarized in an issues list (the ARRC Issues List) submitted along with the letter.
While the ARRC believes the existing no-action letters address many of the regulatory issues in the transition, certain modifications have been requested to further ensure a smooth and orderly transition away from LIBOR and other IBORs. One of these requests for DCR—regarding the rates covered by the DCR no-action letter—is an important clarification required for the ISDA 2020 IBOR Fallbacks Protocol, which will facilitate the amendment of swaps to include "Fallback Amendments."
The ARRC previously submitted a letter requesting that DSIO modify its relief to address the implications of certain discount rate changes at derivatives clearing organizations, as well as amendments to credit support annexes. The ARRC continues to request these modifications, which are reiterated in the ARRC Issues List.
While the ARRC believes the existing no-action letters address many of the regulatory issues in the transition, certain modifications have been requested to further ensure a smooth and orderly transition away from LIBOR and other IBORs. One of these requests for DCR—regarding the rates covered by the DCR no-action letter—is an important clarification required for the ISDA 2020 IBOR Fallbacks Protocol, which will facilitate the amendment of swaps to include "Fallback Amendments."
The ARRC previously submitted a letter requesting that DSIO modify its relief to address the implications of certain discount rate changes at derivatives clearing organizations, as well as amendments to credit support annexes. The ARRC continues to request these modifications, which are reiterated in the ARRC Issues List.